Dispatches from the space race

Is it really cheaper to buy than rent?

Zoopla has just sent me a press release revealing that “renting a home now costs 10.5% more on average than servicing a mortgage,” a figure that rises to 42% in the town where the gap is largest: Milton Keynes.

But Milton Keynes is not alone:”renting a home is now a more expensive option than owning in 80% of Britain’s towns and cities.”

Terraced houses

How do they know this? The research is based on the following calculation: the % variance between the average monthly rent and the average monthly cost of 5% p.a. interest-only mortgage – both rents and house prices are based on the site’s asking prices data.

That makes for a catchy story but a lot is left out of the calculation, such as:

Loss of interest on the deposit (sizable right now) paid when buying

Buying costs (stamp duty, etc)

The cost of owning (repairs, insurance etc)

Over the term of a mortgage other issues come into play: house prices might fall, and interest rates might rise, for example.

Zoopla’s Nicholas Leeming acknowledges that the picture changes if rate rises are factored into the calculation: “While buying wins out over renting today, the impact of a possible rise in interest rates cannot be ignored.

“If interest rates were to increase by 1% and rents were to remain the same, renting would become more cost-effective in 78% of the locations studied.”

Comparing the cost of renting and buying is certainly a valuable exercise – but the Zoopla calculation would be a lot more convincing if they added a few more variables and mapped out a couple of scenarios over, say, a three to five-year period.

The Zoopla article is nonsense.
– with the costs of ownership so immense, the financial decision on whether it’s cheaper to buy or rent is largely tied to your time frame and many other factors.
Here’s what I believe to be the most advanced buy or rent calculator on the web that takes into account all the major factors:http://excelexperts.com/Buy-Or-Rent-Calculator
– put your own values in and look at the numbers. It’s a personal decision, not a blanket one.